CBK Confirms No Existential Threat To Banks After Passing Business Laws Bill
The Central Bank of Kenya has announced that it anticipates bank mergers after Parliament’s adoption of a minimum core capital of Ksh10 billion for commercial banks.
At the moment, banks must have a minimum core capital of Ksh1 billion.
Speaking at a press conference following the Monetary Policy Committee meeting on Friday, CBK Governor Kamau appeared unconcerned about Kenyans’ fears that the bill will lead to bank collapses.
Members of Parliament passed the Business Laws (Amendment) Bill, 2024, submitted by the CBK on Wednesday night, and it now awaits President William Ruto’s signature before becoming effective.
A merger in banking occurs when two banks unite to form a new business. This can include forming a new parent corporation to govern both banks or one bank swallowing another.
In his explanation, the governor anticipates that a merger will increase banks’ core capital, enhancing their ability to withstand financial shocks.
At this point, it is still a projection. However, if it is implemented, Kenyans should expect changes such as new account numbers, debit/credit cards, and upgraded banking platforms.
However, it may imply access to a wider choice of services and a larger branch/ATM network.
Customers may only notice minor changes once a bank rebrands itself.
During the public involvement period, it was revealed that up to 24 banks could be thrown out of business if measures to increase capital requirements become law.
The Kenya Bankers Association informed the National Assembly Finance and National Planning Committee, led by Molo MP Kuria Kimani, that the change would have an impact on the livelihoods of more than 7,000 employees.
However, Governor Kamau has justified the measure, claiming that it will enhance local banks’ capital buffers and strengthen the country’s financial system.
According to the governor, lifting the ceiling will increase local banks’ competitiveness in the region.
Parliament amended the law, which initially set a three-year compliance time.
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However, the Finance Committee has increased the time of compliance from three to eight years.
The proposed timeline comprises a phased compliance strategy that begins with a core capital of Ksh1 billion on December 31 and ends with Ksh10 billion on December 31, 2027.
Should the minimum capital requirements for banks be raised to KES 10B, then only 15 of 39 registered banks in Kenya would meet that threshold using these numbers from December 2022.
— Mwango Capital (@MwangoCapital) June 13, 2024
This would mean many of them have to either raise capital or merge or close. https://t.co/U1tM769q2f pic.twitter.com/kFVw8DjIni
In its report tabled in Parliament, the Finance Committee stated, “The committee observed that despite the exponential growth in assets, liabilities, and number of depositors and borrowers, the minimum core capital for banks has remained at Ksh1 billion.”
Kimani Kuria asserted, “The low capital base, which supports a significant asset base of the banking sector, makes banks more susceptible to failure.”
CBK Confirms No Existential Threat To Banks After Passing Business Laws Bill
